December 09, 2011

RAL's Last Day

The last day any taxpayer can get a Refund Anticipation Loan will be April 30, 2012. After that, you'll have to find another source for a high interest loan on your tax return. And prior to April 30th, it's going to be hard to find a RAL because only one bank, Republic, will be offering the loans.

The IRS stopped sharing the debt indicator with the refund loan banks in August of 2010 and the banks started pulling out of the business. This departure was hastened when the FDIC and OCC prohibited the banks they regulate from offering the products. Republic was the only bank that fought the FDIC's order. It looks like they have worked out a deal.

April 30, 2012 will be the last day Republic will offer RALs. They will continue to offer Refund Anticipation Checks (RAC). These are not loans but allow taxpayers to have their tax preparation fees come out of their refund. Fees are set and run from $5 on up and depend on the bank and how the taxpayer chooses to receive their refund.

Also as part of their deal with the FDIC, Republic will pay a penalty of $900,000 (down from $2 million) and create an oversite plan for policing EROs (Electronic Return Originator) who offer the RAL. This includes audits of 10% of their EROs that will check documents and policies. They will also use mystery shoppers, create a plan to approve all ERO ads before they are run and create a program to monitor ERO's for income tax return quality and make sure they are charging acceptable fees. Basically, the FDIC will be holding Republic responsible for the actions of the customers who are offering Republic's products.

I'm assuming that the oversite agreement will continue after RALs are gone and the FDIC is planning to monitor RACs too. If that is the case, it won't be long before the other RAC banks are tightening up their oversite too.

Disclaimer

Disclaimer

A reader should seek advice from an independent tax adviser with respect to the information on this blog based on the reader’s particular circumstances. This advice is intended to be general information and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed here.